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Economic Reports Due Out (Times are EST): Personal Income and Outlays (8:30am), Consumer Sentiment (9:55am), Pending Home Sales Index (10am)

My Observations and What to Expect:

Futures are slightly higher at the open.

Asia was mixed in its trading while Europe is sporting average gains of about 0.75% so far on the day.

The market showed some follow through on the previous day's bounce.

The S&P was unable to break through the 50-day moving average after testing it two days straight.

Watch for resistance on the S&P at 1337, which would be a test of the upper channel band. Break through it, and a test of recovery highs would likely be in order.

Short-term support sits at 1311 (Tuesday's Lows), a break of that price level, and we'll likely test the 4/18 lows at 1294.

To put recent weakness in perspective - if we finish down on this week (which is how it looks right now), it will mark the fourth consecutive week that we have done so, which would only be the third time that has occurred since March '09. Even during the 2007-2009 meltdown, we only had 3 such 4-week periods - and only one that went longer.

To put it in perspective - we are very oversold at this point, and taking on a heavy short portfolio or suddenly deciding to short this market in general, carries an elevated risk to it.

The most important price level on the S&P now becomes 1294, which represents the previous higher-low. Break it, and things will unravel at the seams. Also a break out of or below the descending channel, would go a long way in changing the character of this market.

My conclusion: Yesterday's rally indicates to me that we are more than likely to test the 1337 level to the upside. How we respond at that point, will determine whether we go much higher, or much lower going forward. Let the charts tell you. No guessing necessary.